Lake Somenos Furniture Co.
Income Statement (2001)

\begin{array}{lr}\text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & 5,260,000 \\ \text { Gross profit } & 2,740,000 \\ \text { Selling and administrative expenses } & 1,500,000 \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expenses } & 140,000 \\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & 440,000 \\ \text { Net ineome } & \$ 660,000\end{array}

\begin{array}{l}\text { Balance Sheet }\\\begin{array}{lrr} & 2001 & {2000} \\\text { Cash } & \$ 200,000 & \$ 50,000 \\\text { Accounts receivable } & 1,200,000 & 950,000 \\\text { Inventory } & 1.840,000 & 1,500,000 \\\text { Total current assets } & 3,240,000 & 2,500,000 \\\text { Fixed assets } & 3,200,000 & 3,000,000 \\\hline \text { Total assets } & \$ 6,440,000 & \$ 5,500,000 \\\text { Accounts payable } & 800,000 & 720,000 \\\text { Bank loan } & 600,000 & 100,000 \\\hline \text { Total current liabilities } & 1,400,000 & 820,000 \\\text { Bonds payable } & 900,000 & 1,000,000 \\\text { Total liabilities } & 2,300,000 & 1,820,000 \\\text { Common stock(130,000 shares) } & 300,000 & 300,000 \\\text { Retained earnings } & 3,840,000 & 3,380,000 \\\text { Total liabilities \& equity } & \$ 6,440,000 & \$ 5,500,000\end{array}\end{array}

-Refer to the financial statements of Lake Somenos Furniture Co.The firm's P/E ratio for 2001 is ____.
A) 7.88
B) 1.63
C) 4.00
D) 15.00
E) none of these

Firms Will Not Have Both Relatively High Profit Margins and Total

Multiple Choice

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